United States District Court, E.D. North Carolina, Western Division
TBM CONSULTING GROUP, INC., BILL REMY, MICHELE BENNETT, DAN SULLIVAN, and KEN KOENEMANN, Plaintiffs,
LUBBOCK NATIONAL BANK, Defendant.
W. FLANAGAN UNITED STATES DISTRICT JUDGE
matter is before the court on defendant's motion to
dismiss (DE 17) pursuant to Federal Rules of Civil Procedure
12(b)(1) and 12(b)(6). The motion has been fully briefed, and
in this posture the issues presented are ripe for ruling. For
the reasons noted, the motion is granted in part and denied
OF THE CASE
filed this action on September 11, 2017, under the Employee
Retirement Income Security Act of 1974 (“ERISA”),
29 U.S.C. § 1001 et seq., seeking relief for
defendant's alleged violations of provisions of Title I
of ERISA and for breaches of fiduciary duty incurred in
connection with defendant's role as trustee of an ERISA
plan established by plaintiff TBM Consulting Group, Inc.
(“TBM”) for the benefit of TBM employees,
including plaintiffs Bill Remy, Michele Bennett, Dan
Sullivan, and Ken Koenemann (“individual
“plaintiffs”). Individual plaintiffs assert two
claims: disloyalty, imprudence, failure to comply with plan
documents in violation of ERISA §§ 404(a)(1)(A),
(B), and (D) and violations of ERISA §§
406(a)(1)(A) and (D) for prohibited transactions. Plaintiff
TBM additionally asserts a state-law claim of negligent
misrepresentation against defendant.
of answer, defendant filed the instant motion to dismiss on
November 17, 2017, arguing that 1) plaintiffs lack statutory
standing to pursue their ERISA-based claims and 2) plaintiff
TBM's negligent-misrepresentation claim is preempted by
ERISA. In support of defendant's motion to dismiss,
defendant relies upon 1) the plan document at issue, the
“TBM Consulting Group, Inc. Employee Stock Ownership
Plan” (the “Plan”) 2) the Plan's IRS
Form 5500 filings, and 3) complaint from Perez v. Cactus
Feeders, Inc., No. 2:16-CV-49 (N.D. Tex.), a case in
which defendant was involved. On December 22, 2017,
plaintiffs filed opposition, to which defendant filed reply
on January 19, 2018. In support of defendant's reply,
defendant relies upon the TBM Consulting Group, Inc. Stock
Purchase Agreement (the “SPA”).
November 20, 2017, the court stayed scheduling activities
pending resolution of defendant's instant motion.
OF THE FACTS
relevant facts alleged in the complaint may be summarized as
follows. Founded in 1991, TBM is a management consulting firm
headquartered in Morrisville, North Carolina, providing
consulting services on a worldwide basis. In or around 2003,
TBM established the Plan, an employee stock ownership plan
entitled the “TBM Consulting Group, Inc. Employee Stock
Ownership Plan.” The Plan is a pension plan within the
meaning of ERISA § 3(2), 29 U.S.C. § 1002(2). The
Plan was created so that participants could obtain an
ownership interest in TBM.
around 2011, Anand Sharma (“Sharma”), who was
then TBM's president and chief executive officer, sought
to sell most of the 77, 799.07 shares of TBM Series B common
stock that he owned either personally or through two entities
he managed and/or controlled, representing approximately 25.1
percent of TBM's outstanding shares. Sharma ultimately
sought to sell approximately 80 percent of his shares
(“Swarma shares”) with the Plan serving as the
buyer (the “Plan transaction”).
2007 until in or about August 2011, North Star Trust Company
(“North Star Trust”) served as the trustee for
the Plan. In July 2011, approximately two months before the
Plan's purchase of the Sharma shares, Sharma recommended
to the TBM board of directors that it replace North Star
Trust as Plan trustee with defendant, which the board
accepted. Defendant had a close relationship with the
attorney advising plaintiff TBM and Sharma with respect to
the Plan transaction and was otherwise unknown to the
TBM's board prior to Sharma's recommendation.
Defendant's appointment as trustee of the Plan became
effective on or about August 12, 2011, 30 days before the
Plan transaction closed on September 12, 2011.
trustee of the Plan, defendant exercised discretionary
authority and control over management and disposition of the
Plan's assets. In connection with the Plan transaction,
defendant retained Stout Risius Ross, Inc.
(“SRR”) to act as its independent financial
advisor. SRR had previously provided valuation services to
North Star Trust prior to defendant's retention. SRR was
to prepare a valuation of TBM for the Plan transaction, and a
fairness opinion concerning, among other things, the proper
consideration to be paid by the Plan for the Sharma shares.
allege the SRR report relied heavily on financial projections
for the ensuing four years, from 2011 through 2015, which,
influenced by Sharma, reflected substantial future increases
in the business of TBM. These forecast increases over this
period were inconsistent with the trajectory of TBM's
actual financial performance, as audited, for the years 2006
to 2010, and with the internally prepared financial
statements of TBM for the first seven months of 2011.
Additionally, the annual forward-looking valuations prepared
by SRR on behalf of the Plan trustee from 2007 through 2010
also relied heavily on future financial projections prepared,
or heavily influenced, by Sharma. These projections were
never subsequently achieved and were well in excess of actual
closed the Plan transaction on September 12, 2011, within one
month of its appointment. On that date, defendant, Sharma,
and plaintiff TBM entered into the SPA. Pursuant to the SPA,
Sharma sold to defendant, as trustee, 62, 239.26 shares of
TBM Series B common stock for $10, 500, 000.00 in cash,
payable at closing, an amount which plaintiffs allege
“was unsupportable in light of the company's
history and the unreliability of the Sharma-influenced
projections.” (Compl. (DE 1) ¶ 45).
Plan transaction consisted of 1) a loan to plaintiff TBM from
a third-party bank, 2) a $10, 500, 000.00 loan from TBM to
the Plan, 3) the Plan's purchase of the Swarma shares
using the $10, 500, 000.00 loan from TBM to the Plan, and 4)
the pledging of those shares to TBM as collateral for the
plaintiffs also allege that they “seek relief . . . on
behalf of the [Plan] as a whole and are appropriate
representatives thereof, seeking no personal benefit from
this action beyond the damages sustained” as a result
of defendant's alleged breach. (Id. ¶ 9).
moves to dismiss plaintiffs' two ERISA-based claims for
lack of subject matter jurisdiction, alleging in what appears
to be a facial challenge that 1) individual plaintiffs
“lack standing to pursue their ERISA-based claims
because they have employed no procedural safeguards to ensure
they adequately represent the interests of the absent Plan
participants, ” and, in what appears to be a factual
challenge, that 2) “there are no procedural safeguards
that would be sufficient to allow plaintiffs to proceed with
their ERISA claims” because plaintiffs appear to be
“singularly inadequate representatives of the plan as a
whole.” (DE 19 at 6-15). Additionally, defendant moves
to dismiss plaintiff TBM's negligent-misrepresentation
claim for failure to state a claim upon which relief can be
granted, arguing ERISA preempts this claim.
court will first address the appropriate standard of review
and then address each of defendant's arguments in turn
below. A. Standard of Review A Rule 12(b)(1) motion
challenges the court's subject matter jurisdiction, and
the petitioner bears the burden of showing that federal
jurisdiction is appropriate when challenged by the
respondent. McNutt v. Gen. Motors Acceptance Corp.,
298 U.S. 178, 189 (1936); Adams v. Bain, 697 F.2d
1213, 1219 (4th Cir. 1982). Such a motion may either 1)
assert the complaint fails to state facts upon which subject
matter jurisdiction may be based, or 2) attack the factual
basis for subject matter jurisdiction, apart from the
complaint. Bain, 697 F.2d at 1219. Under the former
assertion, the moving party contends that the complaint
“simply fails to allege facts upon which subject matter
jurisdiction can be based.” Id. In that case,
“the [petitioner], in effect, is afforded the same
procedural protection as he would receive under a Rule
12(b)(6) consideration.” Id. “[T]he
facts alleged in the complaint are taken as true, and the
motion must be denied if the complaint alleges sufficient
facts to invoke subject matter jurisdiction.” Kerns
v. United States, 585 F.3d 187, 192 (4th Cir. 2009).
When the respondent challenges the factual predicate of
subject matter jurisdiction, a court “is to regard the
pleadings' allegations as mere evidence on the issue, and
may consider evidence outside the pleadings without
converting the proceeding to one for summary judgment.”
Richmond, Fredericksburg & Potomac R. Co. v. United
States, 945 F.2d 765, 768 (4th Cir. 1991). The nonmoving
party “must set forth specific facts beyond the
pleadings to show that a genuine issue of material fact
survive a motion to dismiss” under Rule 12(b)(6),
“a complaint must contain sufficient factual matter,
accepted as true, to ‘state a claim to relief that is
plausible on its face.'” Ashcroft v.
Iqbal, 556 U.S. 662, 663 (2009) (quoting Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
“Factual allegations must be enough to raise a right to
relief above the speculative level.” Twombly,
550 U.S. at 555. In evaluating whether a claim is stated,
“[the] court accepts all well-pled facts as true and
construes these facts in the light most favorable to the
plaintiff, ” but does not consider “legal
conclusions, elements of a cause of action, . . . bare
assertions devoid of further factual enhancement[, ] . . .
unwarranted inferences, unreasonable conclusions, or
arguments.” Nemet Chevrolet, Ltd. v.
Consumeraffairs.com, Inc., 591 F.3d 250, 255 (4th Cir.
2009) (citations omitted).
argues that its challenge to plaintiffs' statutory
standing is brought properly pursuant to Rule 12(b)(1).
However, a challenge to statutory, not constitutional,
standing is properly considered under Rule 12(b)(6). See
David v. Alphin, 704 F.3d 327, 333 (4th Cir. 2013)
(noting distinction between statutory standing and Article
III standing to bring ERISA claims); CGM, LLC v.
BellSouth Telecommunications, Inc., 664 F.3d 46, 52 (4th
Cir. 2011) (“Nevertheless, the district court correctly
focused on Civil Procedure Rule 12(b)(6) because the standing
inquiry at the heart of this case is statutory standing-a
concept distinct from Article III and prudential standing.
And typically, [a] dismissal for lack of statutory standing
is effectively the same as a dismissal for failure to state a
claim.”) (citations omitted)); United States v.
Oregon, 671 F.3d 484, 490 (4th Cir. 2012) (“We
note that the ‘standing' at issue in this case is
statutory standing, which is a separate inquiry from Article
III standing. Statutory standing is itself a merits
issue.”) (citations omitted)); see also DB
Healthcare, LLC v. Blue Cross Blue Shield of Arizona,
Inc., 852 F.3d 868, 873 (9th Cir. 2017) (“[A]
dismissal for lack of statutory standing [under ERISA] is
properly viewed as a dismissal for failure to state a claim
rather than a dismissal for lack of subject matter
jurisdiction.”); AvuTox, LLC v. Cigna Health &
Life Ins. Co., No. 5:17-CV-250-BO, 2017 WL 6062257, at
*3 (E.D. N.C. Dec. 7, 2017) (“A challenge to a
plaintiff's derivative standing to sue under ERISA is
considered under Rule 12(b)(6).”).
the court considers defendant's motion to dismiss as one
brought pursuant solely to Rule 12(b)(6). See, e.g.,
Hawes v. Network Solutions, Inc., 337 F.3d 377, 383
(4th Cir.2003) (explaining that a district court should
consider a motion to dismiss improperly filed under Rule
12(b)(1), when predicated on non-jurisdictional grounds, as a
motion under 12(b)(6)).
may not consider matters outside the pleadings without
converting a Rule 12(b)(6) motion to a motion for summary
judgment. Fed.R.Civ.P. 12(d). However, documents attached to
the complaint and those incorporated in it by reference are
deemed part of the pleadings and therefore may be considered
without converting a Rule 12(b)(6) motion. See Pueschel
v. United States, 369 F.3d 345, 353 n. 3 (4th Cir.2004);
Am. Chiropractic Ass'n v. Trigon Healthcare,
Inc., 367 F.3d 212, 234 (4th Cir.2004); see also
Philips v. Pitt Cty. Mem'l Hosp., 572 F.3d 176, 180
the Plan document and SPA are clearly referenced throughout
the complaint, (see, e.g., Compl. (DE 1)
¶¶ 12-14, 41-42), and the authenticity of the
documents is not disputed. Thus, the court will consider
§ 502(a)(2) provides that “[a] civil action may be
brought-by the Secretary [of Labor], or by a [plan]
participant, beneficiary or fiduciary for appropriate relief
under section 1109 of this ...